Wednesday, November 30, 2011

Borrowing Costs Fall for European Bailout Fund

Wall Street Journal
November 30, 2011

Borrowing costs for the euro zone's vehicle for funding government bailouts reversed from higher levels Wednesday as market participants assessed plans on how it might support countries struggling with high amounts of debt.

Bonds sold by the European Financial Stability Facility act as an indicator of investor confidence in the euro-rescue project.

Borrowing costs on all four of the EFSF's bonds were lower than closing levels Tuesday after the facility outlined the latest plan for leveraging up its resources. Both of the two options put forward aim to provide "immediate and credible support" for large economies like Italy and Spain, it said.

"The final amount of firepower depends on the instrument mix, and the development of leverage is not instantaneous but should be seen as a process over time," said rates strategists at Société Générale.

An imminent increase in the EFSF's lending capacity—despite it being significantly lower than the €1 trillion touted earlier—combined with possible support from the International Monetary Fund has helped underpin risk appetite in the market, they said.


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